Stats for nerds
3recommend
3mentions
3people
2012–2016years
100% recommend
Mentions per year
What Hacker News says
- FWIW this would be my list of books every investor should read, which is different from what you should read to work in finance but anyway ...
Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein. A lively introduction to the theoretical foundations of modern finance and their history, Markowitz, Sharpe, etc. https://www.amazon.com/Capital-Ideas-Improbable-Origins-Mode...
The Essays of Warren Buffett : Lessons for Corporate America by Warren E. Buffett. In his own words...you can also find many if not all online, on Berkshire website https://www.amazon.com/The-Essays-Warren-Buffett-Corporate/d...
Buffett: The Making of an American Capitalist by Roger Lowenstein. Insightful biography...The Snowball was written more recently with Buffett's approval, but would read this one first https://www.amazon.com/Buffett-American-Capitalist-Roger-Low...
Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher. It's not widely appreciated, but Warren Buffett's method is 50% Ben Graham and 50% Phil Fisher. If you can find value stocks that are also great franchises, and hold onto them for dear life, you will be rich... if you also bet big, operate companies well, don't screw up, live in a bull market era and survive long enough, maybe as rich as Buffett. https://www.amazon.com/Common-Stocks-Uncommon-Profits-Writin...
The Intelligent Investor: A Book of Practical Counsel by Benjamin Graham. Classic introduction to value investing https://www.amazon.com/The-Intelligent-Investor-Practical-Co...
Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen. Asset allocation, and the perils of mutual funds...leading endowment investor of our time (Yale) gives his advice for individuals https://www.amazon.com/Unconventional-Success-Fundamental-Ap...
The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks. Lessons in investing... at any time, any one of them can be 'the most important thing' and so they all are jointly and severally 'the most important thing'. https://www.amazon.com/The-Most-Important-Thing-Thoughtful/d...
The Investor's Anthology: Original Ideas from the Industry's Greatest Minds (Vols 1 and 2) by Charles D. Ellis (Editor), James R. Vertin (Editor). Essays from a broad selection of writers https://www.amazon.com/The-Investors-Anthology-Industrys-Inv... https://www.amazon.com/Classics-II-Another-Investors-Antholo...
The Money Masters; The New Money Masters; Money Masters of Our Time, by John Train. Methodologies of all-time great money managers, in their own words https://www.amazon.com/The-Money-Masters-John-Train/dp/08873... https://www.amazon.com/Money-Masters-Time-John-Train/dp/0887... https://www.amazon.com/New-Money-Masters-John-Train/dp/08873...
Market Wizards; The New Market Wizards; Hedge Fund Market Wizards, by Jack D. Schwager. Interviews of successful traders https://www.amazon.com/Market-Wizards-Jack-D-Schwager/dp/088... https://www.amazon.com/The-New-Market-Wizards-Conversations/... https://www.amazon.com/Hedge-Fund-Market-Wizards-Winning/dp/...
Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger. Why good markets go bad https://www.amazon.com/Manias-Panics-Crashes-Financial-Inves...
Reminiscences of a Stock Operator by Edwin Lefevre. Fictionalized biography of a famed early-20th century trader https://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Le...
A Random Walk Down Wall Street: The Best and Latest Investment Advice Money Can Buy by Burton G. Malkiel. Reality check from an efficient market theorist https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...
This is a rollicking good read on links between Shannon, Kelly, Thorpe, who wrote 'Beat the Dealer' and was maybe the first hedge fund legend https://www.amazon.com/Fortunes-Formula-Scientific-Betting-C...
And maybe something on technical analysis, but not really sure what to recommend...a lot of people view it kind as mumbo jumbo, but I kind of think fundamentals are like playing your poker hand, technicals are like playing the opponents' tells...the chart gives you an idea of who owns it at what price, what levels might make people rethink positions. Maybe this one as an easy intro, dumb title notwithstanding https://www.amazon.com/Stan-Weinsteins-Secrets-Profiting-Mar...
- Since no one has really answered your question, I will chime in.
Firstly, investing is a very personal thing. The style of investing you follow will depend very much on your temperament, investment timeframe, investable cash flow, time you are willing to commit, etc. Basically, you need an investment philosophy. I don't know any shortcuts for this besides reading a ton of investment books. You can try Damodaran's Investment Philosophy course lectures on YouTube. He'll give an overview of the main investment flavors.
Here's my "process":
- I get ideas by reading a lot: Barron's, WSJ, Fortune, as well as looking at various screeners such as low P/E stocks and companies trading at their 52-week lows. I am skeptical of large cap stocks in the billions, as those are picked over fairly well. Large funds have too much money they need to put to work to invest in a $250MM company, so analysts don't follow them much. These are prime candidates for gaining an edge.
- Then I pull their annual (and quarterly) reports. The AR will give you a feel for the business, how it makes money, growth strategy, etc. A lot of times I don't feel comfortable with my level of understanding and just bail. Sometimes I'm uncomfortable but keep reading for educational purposes, but in the back of my mind I've already firmly placed this in the "pass" category. I also start looking at the industry as a whole and competitors. I start to formulate an opinion on where the business is in general and what the key variables are. Again, the default here is to pass.
- Once I have a feel for the business, I start looking at the numbers, very roughly. Growth, margins, ROC, debt levels, and similar tell the truth about how good of a business this is. I especially look at how these numbers change over time. I look at free cash flow (FCF), but always in tandem with the companies reinvestment needs. More companies go in the "pass" bin during this stage for various reasons, e.g., high ratio of debt to FCF, where one hiccup and they're toast.
- At this point I have a good business with what looks like good numbers, but I need to know a) can I get it for a good price, and b) why?
I figure out what I think is a fair value for the entire business at current conservative levels. I use DCF (you could use multiples I suppose), but I am purposely fuzzy on the numbers, e.g., I round a lot as a constant reminder that I do not know the future! I also play with the inputs (engineers might call it sensitivity analysis) to get a rough range of a fair value.
- I can then see what it's actually trading for. This is why many of my initial filters look for 52-week low stocks and the like, cause otherwise you'll spend a lot of time getting here just to see it's trading for 2x what you think is a fair value.
- The 2nd half of the question, is why is this trading at what I think is a discount? The best candidate company is currently unloved for some reason. Your job is to figure out why.
- Now you are at a point where experience matters, and why Buffet tells his fans to read, read, read. Whatever reason this stock is currently depressed; is it temporary or permanent? If it's temporary, will the company survive (even if things get worse)? You need some kind of edge or insight here, and your general business experience will guide your thinking.
I try to evaluate all possible outcomes and what my annual return will be in each case, and am looking for a margin of safety. Basically, even if things stay bad, will I end up ok? Your best luck here is some kind of safety net to prop up the value close to where you get in, like liquidation value (but be careful here). Think like a business-person.
More often than not, I have no special insight into the current environment and I pass. Every now and then, though, the market gets it wrong. This is your fat pitch and this is the time to swing.
- To keep this somewhat brief, I'll just say there is a ton of nuance, so read books to get more ideas on what to look for. Also know what you're looking at: analyzing Collector's Universe (CLCT, $160MM cap) is different than analyzing Disney, with different investment timeframes, so certain things matter more than others. And both of these are different than looking at a net-net (what Buffet calls a cigar butt, or Graham-style stock).
As the above suggests, not many companies make it all the way through, and that's ok. I read an interview with Mohnish Pabrai recently, and he said something very smart. He said the investor should act like a lady / gentlemen of leisure, casually reading each and every day, keeping an eye out for opportunity, but without the constant impulse to act.
As a beginner, you can even tell yourself as you begin reading that you are not investing, you are just learning. Keep investing in index funds while you learn. You may surprised when a juicy one comes your way.
As for reading, someone else gave some good recs, and you're already reading Graham, so if you've decided "value investing" is for you, I would recommend
- Common Stocks and Uncommon Profits - Fisher. The "scuttlebutt" method for finding good companies. This is good advice in general for learning more about industries.
- One Up on Wall Street - Lynch. High level advice, but good stuff.
If these 2 and TII are a chore for you, then (value) investing is probably not for you. If you like them, then try these:
- Investment Valuation - Aswath Damodaran. The grandaddy of technical valuation. Basically the textbook on doing DCF. Personally I don't obsess over the numbers at this level of detail, but you should learn it. (If a situation is close enough where an 8% discount rate vs. 9% will make the difference between go / no-go, then I am a no-go).
- The Dhando Investor - Mohnish Pabrai. His analysis of Patel's is kinda goofy, but the last half of the book is excellent, and probably the most straightforward advice I've seen for smaller portfolio value investors. He counterbalances the common thought of looking for those 20+ year stocks with his 2-3 year investment method.
- A good Accounting book if you don't already know this stuff.
- Money Masters of our Time - John Train. This will expose you to a lot of different "master" investors with different styles.
This is already too long, and scatter-brained, but I could go on all day about this stuff. If you enjoy the process there's really nothing like it; it's like treasure hunting!
- Hello I have 10 years experience from stocks and stuff and I think you should read a book with the name: "Money masters of our time". The books explains different strategies used by people such as Warren Buffett and Peter Lynch and it gives you a broad picture of the different alternatives you may use. http://www.amazon.com/Money-Masters-Time-John-Train/dp/08873...
You may also want to hang out at http://www.trejdify.com/ which is like Hacker News but business only!
